Bitcoin, Blockchain and Banking

– Bitcoin and Blockchain, two terms, no doubt you have heard in the news recently You might have seen them on your social media feed, or you've heard them on the news at night, and you might have been like me, up until a few weeks ago, wondering what all the fuss was about

My name's Lacey Filipich, and I'm the Founder and Director of Money School, and I see interesting investments come across my desk every day If I looked at all of them, I would not get anything done So whenever something comes my way and I go, "That sounds a bit peculiar" I tend to avoid it for a while But I've had so many people ask me lately, particularly clients, whether they should be buying Bitcoin, that I thought I really should start learning about it

And when a lecture opportunity came up a couple of weeks ago in Perth, where we had Professor David Yermack from Stern School in the States come and visit UWA, I leapt at the opportunity to go to the lecture It was one hour, and I finally feel like I understand what 'Bitcoin' and 'Blockchain' mean After many years of asking people and them responding with things like, 'Oh, it's this magic mathematical formula' or 'it's a black box' And me, my engineer brain going, that makes no sense, I do not want to know about this

Finally I get it now So, wanted to share with you the biggest lesson I've learned I've also written a detailed blog about this, so you might find that useful I'll give you the link in the comments to this video So, first thing that was really important to learn is that Bitcoin and Blockchain are not the same thing

They are not interchangeable, though they tend to get used that way We use Cryptocurrency and Blockchain and Bitcoin and people tend to meld them all together But that's not the case A Blockchain is the thing that you need to be interested in It's a type of technology, it's about encryption and time-stamping

It allows us to verify that a transaction happened at an exact time, in an exact place, on an exact date, and know with 100% surety that that was a transaction and no one can fiddle with it And the way that a Blockchain works is fascinating Please read the blog for some more information about how it all rolls up But basically it's fully transparent, fully de-centralized so that everybody has the ledger There's not one bank in the middle holding the ledger who becomes the person who says, yes, that's definitely where the money went

It's held by all of us, and I guess that's why it gets called a 'trust machine' We all have to trust each other for this to work, and it's designed in a way that it means that people can't lie, all right? That's why auditors, your days are numbered So the Blockchain is the technology, it's the process, the software that they use to create the encryption, to identify that particular transaction, and it's fully secure That is what Blockchain does They are being used all over the place already

Blockchains are being used in insurance, they're being used in contracts They are fantastic tools And they have been around for decades They got their start in the early '90s Blockchains are wonderful things, and they will become part of your life

They're going to revolutionise what happens with our currency Australian Stock Exchange was on track to become the first stock exchange in the world to go fully to Cryptocurrency using a Blockchain Now, unfortunately we've slowed down on that because there's been a change of leadership over there And I'm sad that Australia's not likely to be number one yet But, there's a good chance that in the next 5 to 10 years there will only be one bank in your country, and it will operate with a Cryptocurrency, and you won't need to have all the other commercial banks, because they won't have to charge fees anymore

Your fees will be so minuscule, compared to the 2% we pay for finance at the moment, that we won't need all these different banks We won't need all that competition; you'll just have the one There are so many far-reaching effects that will happen because of Blockchain in terms of people's potential careers, accountancy, being lawyers, auditors, that kind of thing, a banker Odds are, those careers are not going to have quite so many opportunities in the future, so if your kids are looking at that, please encourage them to look elsewhere for a career right now That's the Blockchain, okay? So it will revolutionise our currency, but it will revolutionise far more, and it is coming

Whether you like it or not, it's coming for you Now, Bitcoin is a currency that uses the Blockchain, is 100% digital, they use the Blockchain to ensure that transactions between parties are monitored by everybody, everyone has the ledger The Blockchain means that you can't lie Now, the one bit that I got stuck in is they said, basically, if someone tried to fiddle with any of the Blockchain, tried to change a transaction, you know, like someone might do when they were fiddling with the books, trying to make it look good for the auditor, that they wouldn't be able to do it And if they did manage, that it would be so obvious to everybody, that they would never get away with it

Because when you make a change to one transaction, it affects all subsequent transactions because of the way the mathematical formula works I still haven't got my answer for who is the person who is going to notice that and do something about it But, regardless, it's basically a currency that is completely decentralised You don't need a bank to administer it It self-administers because of the way it's organised

There's a lot of questions, of course, that this raises about, well, then, who has the computing power, and who manages the system? I've answered those in that blog, so go and have a look at the blog for some more info there But basically, Bitcoin is the first of the Cryptocurrencies, and that's why it tends to get used interchangeably There are now several different Cryptocurrencies The next most popular one is called Ethereum And so a lot of people are getting into Ethereum, and it claims to have a slightly different way of operating smart contracts that make it a little bit more superior, it claims, to Bitcoin

But Bitcoin was the original, which is why you hear people talking about Bitcoin and Blockchain and Cryptocurrency all as one thing Now, there are initial coin offerings, I see those coming up every day now, and why wouldn't you? Because look at Bitcoin, it's gone from five cents in 2010, to it just went through $7,000 AUD yesterday That is a return on investment that has outstripped anything I've ever seen, including Berkshire Hathaway, sorry Warren It's one of those things that I can see why people are tempted The value has gone up astronomically

And people are going, well, should I get in, should I buy? Now, what I guess I gathered from that lecture from David Yermack is that, if you don't buy into a Cryptocurrency, if you don't buy into Bitcoin or Ethereum right now, but the Blockchain comes eventually, I don't think it's going to make a big difference if you don't have those You're probably still going to have your wealth converted from whatever it is in AUD to whatever the Cryptocurrency becomes It's not likely that you're going to lose out massively But you're not going to get all those massive gains that people are making at the moment because they're trading So should you buy Bitcoin? Well, look, regardless of whether it's a digital currency or not, it's still currency

Currency has no intrinsic value It has a value that's determined by what's happening in the economy And because we don't have a gold standard anymore, there's no link between that bill that you hold and anything else apart from what all the market forces dictate And that's why you can have crazy inflation, and that's why currencies can rise and drop in value every day If you're going to trade Bitcoin, or Ethereum, or any of the other Cryptocurrencies, you are trading in foreign exchange

That's what you're doing Yes, it's a different method, yes, there's a lot of things that are an advantage to Bitcoin, for example, it's not government-controlled So, for example in Australia, the Australian Tax Office has to take you on your word if you say whether or not you have any Bitcoin, and whether you've made any profits They'll never know They won't be able to see that

Because it's not government-controlled, it has no agreements with nations So they can't audit you like they can a bank, okay? So there's advantages, certainly, and that's why it's going up in price so much But it's still a currency Now, no intrinsic value, you can't say that it is worth, you know, this much land, or this many groceries, because it's going to change You can't sleep in it, there's nothing of value to sell if it plummets, that kind of thing unfortunately

So, if you're the sort of person who wants to invest in foreign exchange, then consider it Certainly consider it But treat it as a foreign exchange experiment, okay? Don't do it with the food money or the rent money Please don't do it with that Do it with money that you can afford to have tied up if you need to

And I guess you've got to treat it a little bit like a game at the moment This is not going to be something that you can say, well, I'm going to put my life savings in it and then I'm going to become a millionaire You just can't guarantee that You can't with any investment, and you certainly can't with Bitcoin or any other Cryptocurrency So use your judgment

If you want some more information about how that Blockchain actually works, because for me, that's the fascinating part, that's the bit that's going to have the impact on all our lives, whether you like it or not, then please read the article All right, thanks for stopping by Cheers, bye

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